AZ Life Insurance Exam (Latest 2024/ 2025 Update) Questions and Verified Answers| 100% Correct| Grade A
AZ Life Insurance Exam (Latest 2024/ 2025
Update) Questions and Verified Answers|
100% Correct| Grade A
Q: A life policy that has premiums that are lower than normal during the early years is called
Decreasing term
Modified life
Variable life
Limited-pay life
Answer:
Modified life
Q: a material change in a modified endowment contract (MEC) results in
the contract becoming void
a new contestable period
the seven pay test, adjustable for cash value, applies again
a tax penalty
Answer:
the seven pay test, adjustable for cash value, applies again
Q: A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value.
The total premiums paid had totaled $16,000. What were the federal income tax consequences to
the policyowner on receipt of the cash value?
$16,000 was received as ordinary income and $4,000 as tax-free
$20,000 was received as a capital gain
$20,000 was received as ordinary income
$16,000 was received tax-free and $4,000 as ordinary income
Answer:
$16,000 was received tax-free and $4,000 as ordinary income
Q: A qualified profit-sharing plan is designed to
allow key employees to participate in the profits of the company
distribute a portion of company earnings to its employees
keep key employees from leaving the company
allow employees to elect company officers
Answer:
distribute a portion of company earnings to its employees
Q: A retired couple would like to maximize the income derived from their combined life
savings and have it payable until they both die. Which annuity would be their best choice?
Fixed annuity
Survivorship annuity
Joint life annuity
Joint and survivor annuity
Answer:
Joint and survivor annuity
Q: A single premium deferred annuity sometimes contains a bailout feature. Which statement
regarding this feature is correct?
If the interest rate falls below a specified level, the surrender charge is waived
If the interest rate rises above a certain level, the surrender charge is waived
It allows the Life and Health Guaranty Association to bailout the insolvent insurer
A reinsurer will make the remainder of the annuity payments if the original insurance company
becomes insolvent
Answer:
If the interest rate falls below a specified level, the surrender charge is waived
Q: A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits
total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the
current value is surrendered today?
$200,000
$80,000
$120,000
$0
Answer:
$200,000
Q: a terminated employee has how many days upon termination to convert group life insurance
coverage to an individual policy
10 days
15 days
30 days
31 days
Answer:
31 days
Q: a trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid
mandatory income tax withholding on the amount transferred
paying transfer fees
paying trustee fees
ever paying income taxes on the distributions
Answer:
mandatory income tax withholding on the amount transferred
Q: a whole life policy that provides a choice of dividend options include the following
statement about dividends
they accrue at a guaranteed rate
they are deferred for one year
they are not guaranteed
they are guaranteed after the first year
Answer:
they are not guaranteed
Q: ABC Company is attempting to minimize the severity of potential losses within its
company. The company is engaged in risk
transference
retention
reduction
avoidance
Answer:
reduction
Q: According to the IRS, a company may NOT do which of the following in regards to funds in
a qualified retirement plan?
Transfer the funds to a new custodian
Invest the funds in mutual funds
Transfer vested funds to terminated employees
Repossess the funds for business purposes
Answer:
Repossess the funds for business purposes
Q: All of these are considered features of whole life insurance EXCEPT
Cash value accumulation
Permanent coverage
Initial premium is lower than for an equivalent amount of term insurance
Policy loans are allowed
Answer:
Initial premium is lower than for an equivalent amount of term insurance
Q: all of these duties that a producer may be required to perform when delivering an insurance
policy EXCEPT
acquire a statement of good health signature
gather the initial premium
review policy with applicant
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T is covered by an Accidental Death and Dismemberment (AD&D) policy that contains an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?
Request will be accepted only if in writing by the insured
Change will be made only if premiums are paid current
Change will be made immediately
Request of the change will be refused
Request of the change will be refused
Which statement about group life insurance is INCORRECT?
Cost can be shared between employer and employee
Each participant requires evidence of insurability
A minimum number of employees participating may be required
Employer is issued a master policy
Each participant requires evidence of insurability
Which of the following is NOT guaranteed in a whole life policy?
Settlement options
Nonforfeiture options
Dividend scale
Policy loan values
Dividend scale
When an applicant applies for a large amount of life insurance coverage, which of the following would likely NOT be an underwriting requirement?
Consumer report
Eye examination
Urine sample
Blood sample
Eye examination
The principal source of information concerning an applicant’s identity, age, and martial status is found in the
MIB
credit report
policy summary
completed application
completed application
A life insurance policy’s waiver of premium rider has the ability to
waive the premium payments in the event the insured becomes financially insolvent
relieve the insured of premiums payments following an initial waiting period after the insured becomes totally disabled
provide a policy loan to cover the premium payments in the event the insured becomes totally disabled
waive the premium on this policy as well as any other insurance policies belonging to the insured in the event of total disability
relieve the insured of premiums payments following an initial waiting period after the insured becomes totally disabled
Which of these is NOT considered the responsibility of a producer during the underwriting process?
Collecting additional medical information if needed
Promptly sending the completed application to the insurance company
Forwarding any material personal observations to the insurer
Selecting the final approval date
Selecting the final approval date
What would be the disadvantage of naming a trust as a beneficiary of a life insurance policy?
Trusts cannot be formed for life insurance purposes
Trust administration fees would reduce policy proceeds
Trust cannot be used if a minor is the beneficiary
Trustee must be a bank or brokerage
Trust administration fees would reduce policy proceeds
Which statement regarding a fixed period settlement option is correct?
The insurance company dictates each installment payment amount
A fixed period settlement option can pay no longer than 20 years
The installment payment amount is determined by the total number of installments
The insurance company dictates the total number of installment payments
The installment payment amount is determined by the total number of installments
What must be given to a life insurance applicant when the agent receives an application and the initial premium?
Agent’s report
Conditional receipt
Commission disclosure
Good health statement
Conditional report
What would be a valid reason for naming a trust as the beneficiary of a life insurance policy as opposed to naming an individual?
Avoiding probate
Management of proceeds would be provided
Trustee can pay off any existing policy loans
More settlement options available with a trustee
Management of proceeds would be provided
An individual, age 45, would like to help pay for his daughter’s college expenses in 10 years. Which annuity would be appropriate for this individual?
Joint and survivor annuity
Deferred annuity
403(b) plan
Immediate annuity
Deferred annuity
The interest credited to the cash values of personally-owned non-qualified annuities is considered
a tax credit
tax-deferred
tax-deductable
tax-exempt
tax-deferred
The reason for backdating a policy is
to avoid being considered a substandard risk due to a recent cancer diagnosis
to obtain a premium rate based on an earlier age
to decrease the face amount
to decrease the Contestable period
to obtain a premium rate based on an earlier age
Which statement concerning an adjustable life insurance policy is FALSE
Cash surrender is possible
Evidence of insurability is required when there is a change in premium
Combines term and permanent insurance into a single plan
An extra premium paid is allowable
Evidence of insurability is required when there is a change in premium
Which of these statements is NOT true regarding a cash value loan against life insurance policy?
Interest normally accrues on unpaid balances
Loan cannot exceed the policy’s cash value
Policy contract terms dictate the interest rate
Interest payments made by policyowner are deductible
Interest payments made by policyowner are deductible
What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?
None will be given
Increased
Reduced
No change
Reduced
Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?
Reduced paid-up nonforfeiture option
Accelerated benefits option
Extended term nonforfeiture option
Cash surrender option
Extended term nonforfeiture option
A terminally ill policy owner decides to sell his life insurance policy at a discount to help support his family. This sale is called a(n)
accelerated death benefit
assignment
viatical settlement
nonforfeiture option
vatical settlement
In what way is life insurance policy affected by an accelerated benefit payment?
Decreases the premiums
Extends the grace period
Increases the policy loan balance
Decreases the death benefit
Decreases the death benefit
Which statement regarding whole life insurance is accurate?
Cash value loans are not permitted
Insurance coverage can continue for life
Policy normally matures at retirement
No cash value accumulations
Insurance coverage can continue for life
Which of the following could be a future used of the cash value that builds in a recently-purchased whole life insurance policy?
Convert the cash value to a paid-up term policy
Gives policyowner ability to borrow against funds within two years
Increases the policy’s face amount
Provide supplemental income in 35 years
Provides supplemental income in 35 years
An advantage of owning a flexible premium life insurance policy would be
Premiums are fixed for the first 5 years
The insurer can make policy changes without difficulty
The policyowner can make policy changes without difficulty
Evidence of insurability is required with any change in premium
The policyowner can make policy changes without difficulty
Which of these in NOT relevant when determining the amount of personal life insurance needed?
Existing life insurance coverage
Local unemployment rates
Household income
Household debt
Local unemployment rates
Which statement regarding the joint survivor life insurance settlement option is NOT true?
Age of the beneficiaries plays a factor when determining the payment amounts
Income continues until the last beneficiaries can be paid
Two or more beneficiaries can be paid
The amount of each installment is larger than the single life income option
The amount of each installment is larger than the single life income option
The beneficiary of a life insurance policy is normally selected by whom?
Policyowner
Contigent beneficiary
Estate
Insurance Company
Policyowner
Tori has an annuity that pays her $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this?
Fixed life annuity with period certain
Variable life annuity with installment refund
Fixed life annuity with cash refund
Variable life annuity with period certain
Fixed life annuity with period certain
Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?
Fixed amount installment option
Fixed period installment option
Life income option
Interest only option
Fixed amount installment option
Which of these statements regarding the extended term insurance nonforfeiture option in a life policy is accurate?
Evidence of insurability is required
Coverage remains until death of the insured
The premium to purchase the coverage comes from the policy’s cash value
Cash value will continue to grow
The premium to purchase the coverage comes from the policy’s cash value
How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?
1 month
2 months
4 months
6 months
6 months
What would be considered an advantage of purchasing term life insurance?
Cash value can be borrowed against
The coverage is permanent
Nonforfeiture values are available
The initial premium is lower compared to an equivalent amount of whole life coverage
The initial premium is lower compared to an equivalent amount of whole life coverage
What typically changes at the re-entry option date found in some term life policies?
beneficiary
amount of coverage
premium
contestable period
premium
How long does one premium payment cover in a single premium whole life policy?
Until the policy’s first renewal date
One month
One year
Full life of the policy
Full life of the policy
All these statements correctly describe an aleatory contract EXCEPT
A legal waiver is considered an aleatory contract
Potential unequal exchange of value for both parties
Only one party makes any kind of legally enforceable offer
Element of chance is involved
Only one party makes any kind of legally enforceable offer
A retired couple would like to maximize the income derived from their combined life savings and have it payable until they both die. Which annuity would be their best choice?
Fixed annuity
Survivor annuity
Joint life annuity
Joint and survivor annuity
Joint and survivor annuity
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
Joint and survivorship
Survivorship life
Universal life
Joint life
Joint life
If an insured dies during the grace period without having paid the premium, how much will the insurer pay?
Policy’s face amount
Total premiums paid will be returned
Policy’s face amount minus any premiums due
Nothing
Policy’s face amount minus any premiums due
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called?
fixed period
period certain
installment refund
straight life
period certain
When a producer submits an application that discloses personal information regarding the applicant, who supplies the privacy notice?
Producer
Insurer
Underwriter
Fiduciary
Producer
What is considered the collateral on a life insurance policy loan?
No collateral needed
The policy’s cash value
The policy’s face value
The equity in a policy owner’s home
The policy’s cash value
A life insurance policy provision that has the ability to reduce the death benefit is called the
accelerated (living) benefit
insuring clause
payor benefit
spendrift clause
accelerated (living) benefit
K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, when will coverage be effective?
The date the sales appointment was made
The date the application was submitted to the insurance company
The date of application
The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured
The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured
A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?
If the interest rate falls below a specified level, the surrender charge is waived
If the interest rises above a certain level, the surrender charge is waived
It allows the Life and Health Guaranty Association to bailout the insolvent insurer
A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent
If the interest rate falls below a specified level, the surrender charge is waived
Which of the following is an unincorporated association whose members provide coverage for one another?
Self-insurer
Lloyds
Reciprocal
Surplus lines
Reciprocal
A life policy that has premiums that are lower than normal during the early years is called
Decreasing term
Modified life
Variable life
Limited-pay life
Modified life
Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?
Injury must have been suffered prior to a stated age
Accidental bodily injury must have been the cause of death
Cause of death must be from a job related injury
Death must occur within a state number of days after the accident
Cause of death must be from a job-related injury
At what point are death proceeds paid in a joint life insurance policy?
When the first insured dies
When the second insured dies
Only after insurable interest has been confirmed to still exist
If both insureds die from the same accident
When the first insured dies
Tim is confined to a nursing home but doesn’t have a terminal illness. Which life insurance rider is designed to help pay for this type of expense?
Cash value rider
Viatical rider
Accelerated (living) rider
Long-term care benefit rider
Long-term care benefit rider
Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?
The periodic payment amount is determined by the beneficiary’s age
The shorter the period of time, the larger each installment
The longer of period of time, the smaller each installment
The installment payments are composed of both principal and interest
The periodic payment amount is determined by the beneficiary’s age
What is an insurance contract that identifies individuals by relationship to a specific organization?
Employer insurance
Group insurance
COBRA plan
Industrial insurance
Group insurance
Field underwriting by a producer
is used to reduce costs to the insurer
involves conducting a physical examination of the applicant
may result in the disclosure of hazardous activities of the applicant
is illegal in most states
may result in the disclosure of hazardous activities of the applicant
When does the producer give a premium receipt for a life insurance application
When the application has been approved
When the initial premium has been paid with the application
During the medical exam
When the completed application has been collected
When the initial premium has been paid with the application
Death benefits from a life insurance policy are normally considered
exempt from federal income tax
subject to the cost recovery rule
subject to attachments from the insured’s creditors
subject to the value-added tax
exempt from federal income tax
What is the tax treatment of benefit payments for a non-qualified annuity?
Benefit payments are always taxable
Benefit payments are subject to taxes only prior to age 70 1/2
Benefit payments must begin at age 59 1/2 to avoid a penalty
Benefit payments received after 70 1/2 are always tax-exempt
Benefit payments are always taxable
An insurance policy that can also be classified as a securities product is called
variable life
modified life
universal life
a Modified Endowment Contract
variable life
How much is normally paid to a policyowner in a life (viatical) settlement?
Total premiums paid plus interest
Full face amount
More than the face amount
Less than the death benefit
Less than the death benefit
Which statement best describes a single premium whole life policy?
Premiums that can only be paid from a single source
A single premium that is due annually
Paid-up policy that offers lifetime protection
Paid-up policy that offers limited protection
Paid-up policy that offers lifetime protection
Which of these occurrences could improve an insurer’s ability to reduce premiums?
Expense factor increase
Mortality rates increase
Rate of earnings on investments increases
Requiring monthly premium payments instead of annual
Rate of earnings on investments increases
Taking a sum of money and decreasing it in size is called
capital gains
capital appreciation
capital liquidation
capital sum
capital liquidation
The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called
implied authority
express authority
apparent authority
acknowledged authority
implied authority
A policyowner pays the first annual premium for a $50,000 life insurance policy and dies one month after the policy effective date. which of these statements is normally true?
Premium will be refunded with interest and no death benefit paid
Premium received by insurer is considered to be unearned
Proceeds are probated to 1/12th of the full amount
Beneficiary receives $50,000 income tax-free
Beneficiary receives $50,000 income tax-free
What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?
All actions by the producer
Not responsible for any acts by the producer
Responsible for acts that involve misrepresentation only
Responsible for acts by the producer that are authority only
Responsible for acts by the producer that are authority only
An applicant submits a life insurance application where an investigative consumer report is used in the underwriting process. Which of these statements is true?
Applicant can determine which item in the report to leave out
Insurer can obtain a copy of this report without the applicants knowledge
Fee for the report is typically paid by the applicant
Applicant has a right to receive a copy of the report
Applicant has the right to receive a copy of the report
A source of supplemental income for a life insurance policyowner can be derived from the
cash value
payor benefit
consideration
face amount
cash value
An annuity which starts paying monthly benefits within a month after issuance is called a(n)
period certain annuity
deferred annuity
fixed annuity
immediate annuity
immediate annuity
When does the owner’s contractual rights begin under an individual annuity contract?
Time of purchase
When the benefit period begins
When the accumulation period ends
After free-look period expires
Time of purchase
Which tax cost is normally associated with death?
Federa excise tax
Sales tax
Federal estate tax
Payroll
Federal estate tax
A life insurance policy’s contingent beneficiary is the
primary person who receives the death benefits if the insured dies
person who receives the death benefits if the primary beneficiary dies before the insured
person who receives the death benefits if there is no need beneficiary
person whose approval is needed before a beneficiary designation is changed
person who receives the death benefits if the primary beneficiary dies before the insured
When a sum of money undergoes capital liquidation, that sum will
increase in value
remain the same indefinitely
decrease in size
create tax deductions
decrease in size
When premiums are determined, one factor would be the expenses of the
beneficiary
insurer
policyowner
producer
insurer
Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?
A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy
Payments can be adjusted monthly by the beneficiary
A portion of the payments paid to the the beneficiary comes from the interest generated from policy loans
Payments are normally guaranteed for 10 years or more
A portion of the payments paid to the beneficiary comes from the interest calculated on the proceeds of the policy
John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract’s cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $50,000. What percentage of the $50,000 distribution was taxable as ordinary income?
0%
25%
50%
100%
100%
Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for
A cash value loan is take out
Automatic premium loan provision utilized
The policy is surrendered for less than what was paid into it
Dividend is issued
The policy is surrendered for less than what was paid into it
Which type of policy can group term life insurance normally be covered to?
An individual renewable policy
An individual level term policy
An individual permanent life insurance policy
A group permanent life insurance policy
An individual permanent life insurance policy
Which of the following is true regarding a person receiving a waiver of premium benefit?
The insured must expect a total recovery within 2 years
The insured will not qualify for short-term disability
The insured will not qualify for workers compensation
The insured must be disabled for a period of time
The insured must be disabled for a period of time
Which of these is NOT an underwriting responsibility of a life insurance agent?
Asking relevant questions concerning an applications avocations
Requesting an attending physician’s report (APR)
Ordering an inspection report
Determining the final rate classification
Determining the final rate classification
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Taxed as a capital gain during the accumulation period
Taxed as ordinary income during the accumulation period
Taxed as ordinary income in the year received
Received tax-free to all recipients
Taxed as ordinary income in the year received
Who normally pays the premiums for a group credit life insurance?
Creditor and borrower share the cost equally
Borrower
Creditor
Beneficiary
Borrower
Which tax is normally associated with an individual’s death?
Excise tax
Consumption tax
Federal estate tax
Ad valorem tax
Federal estate tax
The insurance coverage in a variable life insurance policy may vary based on the value of
the Am Best rating the company has received
its underlying investments
the consumer price index
the total premiums paid
its underlying investments
A policyowner fell behind on the premium payments of a whole life policy and is now in the grace period. How much will the beneficiary receive if the insured dies during this grade period and the policy also contains an outstanding policy loan?
Full face amount
Face amount minus the past-due premium
Face amount minus the loan balance
Face amount minus the loan balance and past-due premium
Face amount minus the loan balance and pas-due premium
A life insurance policyowner would like a dividend option that results in a limited correct outlay of funds. Which dividend option would be chosen?
Paid-up additions
Accumulation at interest
1-year term
Reduction of premium payment
Reduction of premium payment
A reciprocal insurer typically has an administrator who manages the premiums collected from the group’s members. The administrator is called a(n)
reciprocal commisioner
attorney general
attorney-in-fact
reciprocal director
attorney-in-fact
An annuity’s accumulation period may
continue after the purchase payments stop
continue after the benefit payments start
continue after the annuitant dies
continues after the annuity has been surrendered
continue after the purchase payments stop
Which report contains information regarding an individual’s general reputation and credit standing
Credit report
Consumer report
MIB report
Agent’s report
Consumer report
Which of these is NOT a common life insurance nonforfeiture option?
Reduced paid-up insurance
Extended term option
Cash surrender option
Life income annuity
Life income annuity
A life insurance beneficiary died after receiving only six payments under the policy’s life income settlement option. What happens with the remaining balance of the death proceeds?
Transfers to the insured’s estate
Transfers to the beneficiary’s estate
Donated to charity
Kept by the insurance company
Kept by the insurance company
A signed good health statement mat be requested by a life producer at the time of
policy issue
application
policy delivery
physical examination
policy delivery
Which of these factors does NOT influence an individual’s need for life insurance?
Lifestyle of the applicant
Number of dependents
Future education costs of dependents
Self-maintenance expenses
Self-maintenance expenses
Dividends from a stock insurance company are normally sent to
beneficiaries
shareholders
policyowners
insureds
shareholders
Which of the following would NOT be a reason for purchasing life insurance on a child’s life?
Provide benefits for the child if the parents die
Pay for the child’s funeral expenses
Provide a start on the child’s personal insurance
Help provide funds for the child’s education
Provide benefits for the child if the parents die
When an annuity contract has been fully surrendered, how will the surrender charges affect the final contract settlement?
Final contract settlement will be reduced
Final contract settlement will be increased
Final contract settlement will not be affected
Final contract settlement will be held in escrow until surrender charges are paid
Final contract settlement will be reduced
Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?
When the contract has been held for a period specified in the policy
For the entire length of the contract
Never
When the cash value has reached a stated minimum amount
When the contract has been held for the period specified in the policy
Interest is credited to a fixed annuity no lower than the
variable contract rate
contract guaranteed rate
current rate of inflation
prime rate
contract guaranteed rate
All of these are duties that a producer may be required to perform when delivering an insurance policy EXCEPT
Acquire a statement of good health signature
Gather the initial premium
Review policy with applicant
Leave a conditional receipt with client
Leave a conditional receipt with client
The death proceeds of a credit life insurance policy are typically pid to
borrower
lender
annuitant
borrower’s dependents
lender
Which life insurance settlement option pays lifetime benefits to two or more people?
Life income with period certain
Joint
Joint and survivor
Life income
Joint and survivor
When does the insured stop making payments under a thirty-payment whole life policy?
At the time of death or 30 years after the policy’s inception, whichever comes first
It depends on the performance of the underlying investment account
When the cash value surpasses the face amount
At age 100
At the time of death or 30 years after the policy’s inception, whichever comes first
Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?
Prevents a policy from lapsing in the event of total disability
Premiums waived by the insurer do not have to be repaid by the policyowner
Policy’s cash value would still increase as the policy premiums are being waived
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?
As a Section 1035 exchange
As a transfer
As a rollover
As a Section 1040 exchange
As a Section 1035 exchange
How is a collateral assignment used in a life insurance contract?
Transfers permanent ownership rights to a creditor
Assigns complete ownership rights to a creditor
Transfers specific ownership rights to a creditor
Assigns ownership rights to the primary beneficiary
Transfers specific ownership rights to a creditor
Which of the following statements about universal life insurance is NOT true?
Death benefit can be increased
Premiums are flexible
Universal life insurance normally has a minimum guaranteed cash value for the duration of the policy
The cash value interest rate must equal or exceed a guaranteed value
Universal life insurance normally has a minimum guaranteed cash value for the duration of the policy
How is the insured protected if a payor benefit rider is attached to the life insurance policy?
Premiums are waived if the payor becomes financially insolvent
Policy loan will automatically cover the premiums if payor becomes disabled or dies
Premium payments are waived in the event the premium payor dies or becomes disabled
Policy loan will automatically cover the premiums if payor becomes financially insolvent
Policy loan will automatically cover the premiums if payor becomes disabled or dies
Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?
Interest rate guaranteed with a minimum rate
Interest on proceeds must be paid by the beneficiary
Interest is payable to a stated beneficiary
Interest must be paid at least annually
Interest on proceed must be paid by the beneficiary (TAXES is what is paid by beneficiary not interest.)
When the disclosure of an insured’s nonpublic information is involved, what is the insurer obligated to do?
Insurer is not obligated to take any action
Insurer is obligated to verify that the producer is in compliance
Give notice, explain, and allow opting out
Provide the proper NAIC paperwork
Give notice, explain, and allow opting out
Where will a life insurance policy’s proceeds be directed to if all the beneficiaries die before the insured?
Insure’s creditors
Beneficriary’s estate
Insured’s estate
Court-ordered beneficiary
Insured’s estate
After the extended term life nonforfeiture option is chose, the available insurance will be
increasing term for stated period of time
level term for a stated period of time
decreasing term for a stated period of time
renewable for a stated period of time
level term for a stated period of time
An insurance policy may be issued with a preferred insurance premium in all these situations EXCEPT
good credit history
living in a rural area
good health history
being a nonsmoker
living in a rural area
Where is the difference between a standard risk and a substandard risk reflected?
Backdating
Coverage is not offered
Premium charges
Back-end charges
Premium charges
Which of these is NOT an advantage of term life insurance?
The greatest amount of coverage can be provided for the initial premium paid
It can be provided as a rider to another policy
A cash benefit will be provided if the insured is alive at the end of the policy period
Temporary insurance needs can be met
A cash benefit will be provided if the insured is alive at the end of the policy period
Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of
Expresses authority
Implied auhtority
Apparent authority
Fiduciary duty
Apparent authority
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
$0
$50,000
Under $50,00 initially, but decreases annually over time
Under $50,000 initially, but increases over time
Under $50,000 initially, but increases over time
After an applicant reads and signs an insurance application, he/she should be conscious of the fact that
a false statement could lead to loss of coverage
premium refunds are not allowed
the policy is guaranteed to be issued
the premium quoted but the agent is final
a false statement could lead to loss of coverage
Which life insurance company policy provision prohibits a beneficiary from “commuting, encumbering, withdrawing, or assigning” any portion of the proceeds prior to actual receipt from the company?
Insuring clause
Spendthrift clause
Nonforfeiture provision
Collateral provision
Spendthrift clause
The initial premium for a life insure policy is typically paid in what way?
The applicant mails it to the insurer after the policy has been approved
It is typically obtained by the producer and forwarded to the insurer
It is typically forwarded to the insurer by the applicant
The producer pays it from any commissions received
It is typically obtained by the producer and forwarded to the insurer
A life insurance policy that contains an accelerated (living) benefit rider will provide funds if the
insured is expected to be confined to a nursing home for life
insured recently had a minor heart attack
insured has lost used of one arm
insured is having dire financial problems
insured is expected to be confined to a nursing home for life
Life insurance premiums are computed on what three factors?
Mortality, interest, expenses
An agent gives a conditional receipt to a client for an insurance policy after collecting the initial premium. When will the policy become effective?
When the policy is issued
The date of policy delivery
When the conditions or the receipt are met
The date the sales appointment was
When the conditions of the receipt are met
Which of these is NOT considered a type of limited payment whole life insurance?
Life paid-up at 65
20 payment life
15 payment life
Endowment at age 70
Endowment at age 70
An insured may be required to sign which document at policy delivery to ensure there has not been any adverse medical conditions since the time of the application?
Binding receipt
Good health statement
Agent’s report
MIB disclosure
Good health statement
Which type of life insurance policy allows a policy owner the choice of investments along with flexible premium payments?
Variable universal life
Modified endowment contract
Adjustable life
Graded premium whole life
Variable universal life
Which of the following is NOT a dividend option for a life insurance polity?
Elect to take the dividends in cash
Allow the dividends to accumulate with interest
Use the dividends to pay all or part of the next premium payment
Receiving the entire policy cash value
Receiving the entire policy cash value
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
discontinue after a stated number of years
remain a constant dollar amount for the duration of the annuity period
pay a lump sum if the annuitant dies
vary according to the underlying investment performance
remain a constant dollar amount for the duration of the annuity period
Which of the following would most likely purchase an immediate annuity?
Individual wishing to contribute to a tax-shelter annuity
Individual wanting to accumulate an investment over time
Retiree having a lump sum to invest
Business needing to immediate tax write-off
Retiree having a lump sum to invest
In what situation could an insurance policy’s coverage be modified?
Applicant is preferred risk
Applicant is a substandard risk
Applicant is a standard risk
Applicant is uninsurable
Applicant is substandard risk
The absolute assignment of a life insurance policy results in
all incidents of ownership transferred to the assignee
the assignee receives partial incidents of ownership
the transfer of ownership is revocable at the discretion the original policyowner
evidence of insurability must be proven before ownership is transferred
all incidents of ownership transferred to the asignee
Mike applied for life insurance and was issued a conditional receipt. He is later found to be insurable and is issued a policy. When does his coverage become effective?
Date of issuance of the conditional receipt
Date the policy was approved
Date of policy delivery
Date the insurer received the application
Dated the issuance of the conditional receipt
The Medical Information Bureau consist of members from which group?
Doctors
Hospitals
Insurance Companies
Underwriters
Insurance Companies
Which statemet concerning a decreasing term life insurance policy is accurate
Cash value decreases over the policy period
Premium decreases over the policy period
Face amount deceases over the policy period
Face amount stays the same over the policy period
When does interest income for a flexible premium deferred annuity get reported for federal income taxes?
Never
After the principal has been exhausted
Upon receiving distribution from the contract
During the accumulation phase
Upon receiving distributions from the contract
How may an insurance company classify an accidental death benefit on a life policy?
Optional
Provision
Nonforfeiture
Mandatory
Optional
Which of these life insurance policies does NOT contain a cash value provision?
Modified whole life
Universal life
Decreasing term life
Adjustable life
Decreasing term life
What kind of arrangement gives the policyowner the right to change the beneficiary?
Contestable designation
Incontestable designation
Irrevocable designation
Revocable designation
Revocable designation
What happens when a policyowner borrows against the cash value of his life insurance policy?
The policy proceeds would be reduced by the outstanding loan balance
No additional loans can be taken out in the future
The amount borrowed is added to the policyowner’s gross income for tax purposes
The interest on the loan is tax-deductible
The policy proceeds would be reduced by the outstanding loan balance
The exclusion ration determines
how long an annuitant receives benefits payments
if an annuity is eligible for a 1035 exchange
the interest rate for an annuity
the amount of an annuity payment subject to income tax
the amount of an annuity payment subject to income tax
Which of the following combinations best describe a universal life insurance policy?
A mutual fund and an endowment policy
A term insurance policy and a whole life policy
A modified endowment policy and an annual term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy
What could be the potential result of taking out a cash value loan under a life insurance policy?
Death benefit will be subject to income taxes if insured dies with an outstanding loan balance
Interest that accrues on policy loan is tax-deductible to the policyowner
Loam amount will be added to the policy owner’s gross income
Reduces the amount receivable upon surrender of the contract
Reduces the amount receivable upon surrender of the contract
Which is an accurate description of the premium in a graded premium life insurance policy?
Level premium for a stated number of years then increased annually for the remainder of the contract
Level premium for a stated number of years then decreases annually for the remainder of the contract
Annual decreases in premium for a state number of years then remains level
Annual increases in premium for a stated number of years then remains level
Annual increases in premium for a stated number of years then remains level
Al surrenders his life insurance policy for its cash value. The total of premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the
Premium basis
Net proceeds
Cash basis
Cost basis
Cost basis
Which of these is NOT used as selection criteria in the underwriting process of a life insurance application?
Credit report
National origin
Age of applicant
Sex of applicant
National origin
A material change in a modified endowment contract (MEC) results in
the contract becoming void
a new contestable preiod
the seven pay test, adjusted for cash value, applies again
a tax penalty
the seven pay test, adjusted for cash value, applies again
What determines how much an annuitant is paid for a variable annuity?
Varies according to how many outstanding annuity units
Payment fluctuates as annuitant gets older
The market value variations of the securities backing it
Varies according to the insurer’s investment in its general account
The market value variations of the securities backing it
Which statement regarding the waiver of premium rider is accurate?
Policy loans are used to keep the policy active
Cash payment is not directly provided to the policyowner
Insurance companies are required to offer this to allpolicyowners
Premiums are waived in the event of bankruptcy
Cash payment is not directly provided to the policyowner
A policyonwer with a terminal illness who sells his life insurance policy to a third party is called a
viable
viatical
viator
via tee
viator
Which of these policies is considered a life policy?
Credit life
Single premium life
Renewable life
Convertible life
Single premium life
What kind of life policy typically offers mortgage protection?
Whole life
Decreasing term
Increasing term
Level term
Decreasing term
A survivorship life insurance policy usually covers how many lives?
1
2
3
4
2
Which of these pays an income to two or more annuitants until the death of the last annuitant?
Joint life annuity
Deferred survivor annuity
Joint and survivor annuity
Survivorship annuity
Joint and survivor annuity
We have an expert-written solution to this problem!
When must a producer provide disclosure about information practices to an applicant?
During the medical examination
Upon policy delivery
Prior to or at the time of signing the application
Immediately after signing the application
Prior to or at the time of signing the application
Wyatt is shopping for life insurance and is mainly concerned with the policy’s death benefit. Which index should he be looking at when making comparisons?
Net gain index
Net payment cost index
Cost surrender index
Guaranteed renewable index
Net payment cost index
After an insurance application has been originated, the producer normally
can change the policy provisions
determines whether a claim will be paid
is the major personal contact to the insured
conducts a physical examination
is the major personal contact to the insured
What happens to a life insurance policy when the policy loan balance exceeds the cash value?
Nonforfeiture options are offered
Policy becomes paid-u
Automatic premium loan provision is utilized
Policy will no longer be in force
Policy will no longer be in force
Laura added a children’s rider to her life insurance policy. What type of coverage was added?
Level term
Increasing term
Decreasing term
Juvenile term
Level term
When there is a named beneficiary on a life insurance policy, the death benefits
are directed to a trustee if the insured has any outstanding debts
are paid directly to the insured’s creditors, with any remaining balance fowarded to the beneficiary
are paid directly tot he beneficiary, minus any debts claims by the insured’s creditors
are paid directly to the beneficiary without interference from the insured’s creditors
are paid directly to the beneficiary without interference from the insured’s creditors
Insurable interest in one’s own life is legally considered as
illegal in most states
limited
generally unlimited
contingent on future earnings
generally unlimited
What is the accounting measurement of an insurance company’s future obligations to its policyowners?
Credits
Reserves
Surplus account
Retention fund
Reserves
Switching Life insurance policies without tax consequences is permitted under
MEC rules
Section 1035 rules
the Exclusion Ratio
Replacement rules
Section 1035 rules
The annuitant in a single premium deferred annuity (SPDA)
receives immediate benefit payments
makes only one premium payment
can make tax-free withdrawals until the principal is recovered
is also the beneficiary
makes only one premium payment
Why do insurers require a minimum number of employees participate in a group insurance plant?
Efficiency maximized
Minimize adverse selection
Profits are maximized
Claims are minimized
Minimize adverse selection
When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of designation is this?
Collateral beneficiary
Revocable beneficiary
Irrevocable beneficiary
Per stripes beneficiary
Irrevocable beneficiary
Which of the following would NOT be appropriate for an immediate annuity?
A lottery winner who opted for a lump-sum payment
A parent saving for a child’s college
A beneficiary collecting the face amount of a life insurance policy
Someone who just won a large settlement
A parent saving for a child’s college
These are all accurate statements regarding universal life insurance EXCEPT
Mortality charge is deducted from the policy’s cash value each month
Policy loans are not permitted
Flexible premiums as long as the cost of insurance protection is covered
Policy states what percentage of the premium is contributed to the cash value and which pays for the cost of insurance
Policy loans are not permitted
How long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
2 months
4 months
6 months
12 months
6 months
Which statement concerning a deferred annuity contract is correct?
The contract cannot be assignable by the owner
Requires a single premium payment
The owner can be the beneficiary, annuitant, or neither
Benefits start immediately after contract information
The owner can be the beneficiary, annuitant, or neither
Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were
obtained from the state’s Guaranty Association
accumulated from the invested principal
given up by the annuitant’s refund beneficiary
not distributed to life annuitants who dies before life expectancy
not distributed to life annuitants who dies before life expectancy